Why overdrafts became so expensive — and how to escape

In April 2020 the FCA banned banks from charging fixed daily fees for overdrafts, requiring a single simple interest rate instead. The intention was fairness. The unintended result was that most high-street overdrafts now sit at around 35%–40% APR — comparable to a credit card or higher.

A £1,500 overdraft at 39.9% APR quietly costs around £50 a month in interest. If your balance never comes back into credit, that's £600 a year going to the bank with no reduction in what you owe.

You can ask your bank to convert an overdraft into a fixed-term personal loan at a lower rate — many will do this on request. If your income doesn't stretch that far, you can also ask them to freeze charges under their financial difficulty policy, or include the overdraft in a Debt Management Plan.